Measuring Risk in Fixed Income Portfolios using Yield Curve Models

João Caldeira (), Guilherme Moura () and Andre Santos ()

Computational Economics, 2015, vol. 46, issue 1, 65-82

Abstract: We propose a novel approach to measure risk in fixed income portfolios in terms of value-at-risk (VaR). We obtain closed-form expressions for the vector of expected bond returns and for its covariance matrix based on a general class of dynamic factor models, including the dynamic versions of the Nelson-Siegel and Svensson models, to compute the parametric VaR of a portfolio composed of fixed income securities. The proposed approach provides additional modeling flexibility as it can accommodate alternative specifications of the yield curve as well as alternative specifications of the conditional heteroskedasticity in bond returns. An empirical application involving a data set with 15 fixed income securities with different maturities indicate that the proposed approach delivers accurate VaR estimates. Copyright Springer Science+Business Media New York 2015

Keywords: Dynamic conditional correlation (DCC); Dynamic factor models; Value-at-risk (VaR); Yield curve (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://hdl.handle.net/10.1007/s10614-014-9438-7 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:compec:v:46:y:2015:i:1:p:65-82

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/10614/PS2

DOI: 10.1007/s10614-014-9438-7

Access Statistics for this article

Computational Economics is currently edited by Hans Amman

More articles in Computational Economics from Springer, Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().